Hedge Funds are Selling These 5 Chinese Stocks Amid Crackdowns

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In this article, we discuss the 5 Chinese stocks hedge funds are selling amid crackdowns. If you want to read our detailed analysis of these stocks, go directly to the Hedge Funds are Selling These 10 Chinese Stocks Amid Crackdowns.

5. GDS Holdings Limited (NASDAQ:GDS)

Number of Hedge Fund Holders in Q2: 38   

Number of Hedge Fund Holders in Q1: 40 

GDS Holdings Limited (NASDAQ:GDS) is ranked fifth on our list of 10 Chinese stocks hedge funds are selling amid crackdowns. The firm develops and operates data centers and is headquartered in Shanghai. 

On August 19, investment advisory RBC Capital reiterated an Outperform rating on GDS Holdings Limited (NASDAQ:GDS) stock but lowered the price target to $100 from $122, underlining that the “country risk and macro uncertainty” factored in the ratings update.

At the end of the second quarter of 2021, 38 hedge funds in the database of Insider Monkey held stakes worth $1.6 billion in GDS Holdings Limited (NASDAQ:GDS), down from 40 in the previous quarter worth $2 billion.

In its Q1 2020 investor letter, Baron Asset Fund, an asset management firm, highlighted a few stocks and GDS Holdings Limited (NASDAQ:GDS) was one of them. Here is what the fund said:

“In the most recent quarter, we acquired shares of GDS Holdings Limited, the leading data center developer and operator in China serving the premier Chinese cloud service, e-commerce, social media/gaming, and internet players. Although we have not invested in many foreign-based companies, we believe that GDS represents a compelling opportunity. Its business shares many similarities with Equinix, Inc., a U.S.- based data center operator that has been a profitable long-term investment for the Fund. In addition, our real estate research team has met extensively with GDS management over the course of the last few years and has built increased confidence in the team’s growth aspirations and its ability to successfully execute them. 

We believe that the Chinese data center industry remains in the earlier stages of its growth curve, and we believe it will experience one of the fastest multi-year growth rates globally as the Chinese government continues to support the rapid rollout of 5G connectivity. GDS’s current and future data centers support the critical IT infrastructure that empowers cloud adoption and enables numerous consumer and business applications. In addition to experiencing robust organic growth, GDS has accelerated its growth runway through select M&A. These acquisitions have allowed the company to obtain additional capacity in supply constrained markets at attractive prices. In addition, GDS has supplemented its dense urban strategy with a “campus strategy,” whereby it secures additional supplies of land and power on the outskirts of cities with minimal capital committed.

To provide some perspective on GDS’s growth rate, it signs more “bookings” in a single quarter than many global data center companies sign over the course of a year. Lastly, after two well received capital raises in 2019, GDS remains well funded with ample cash on its balance sheet to support multiple years of accelerated growth. GDS also has several deep-pocketed backers, including the Singaporean government’s investment fund, that have remained supportive of GDS’s growth plans and have participated in several of GDS’s capital raises. We believe there are many similarities to our other data center investments–GDS is earlier on its growth curve but growing at a much faster clip. We see a path for GDS to nearly triple its cash flow over the next few years, and we see a path to double our investment over that timeframe.”

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